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During the recently concluded May term, the Illinois Supreme Court resolved a civil procedure issue with potential implications across a broad spectrum of cases: when a party exercises its right to voluntarily dismiss its own action without prejudice and subsequently refile, is the dismissal accorded res judicata effect?  In Richter v. Prairie Farms Dairy, Inc., a unanimous Illinois Supreme Court held that the answer was “no.”  Our detailed discussion of the underlying facts and lower court holdings in Richter is here.  Our report on the oral argument is here.

Richter began in 1980 when the plaintiffs, partners in the business of dairy farming, became members of the defendant agricultural cooperative.  In mid-2005, the defendant became aware that plaintiffs had temporarily ceased milk production.  Defendant notified plaintiffs that it was terminating their membership in the cooperative (and the parties’ agreement).  The following year, the plaintiff filed a three-count complaint, purporting to allege claims for shareholder remedies, under the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1) and for common law fraud.  On plaintiffs’ motion, the circuit court dismissed the second and third claims with leave to amend, but denied the motion as to the first claim.  The plaintiffs subsequently filed a motion seeking to extend their time to file an amended complaint, but ultimately never filed one.  Instead, the case proceeded on the one remaining claim.  However, after a series of extensions of various deadlines, the plaintiffs voluntarily dismissed their action without prejudice in late 2012.

A year later, plaintiffs refiled their complaint.  This time, they purported to allege four claims: shareholder remedies; misrepresentation; common-law fraud and breach of fiduciary duty.  After a change of venue, the new circuit court presiding over the action dismissed on grounds of res judicata and the statute of limitations.  The Appellate Court reversed, holding that res judicata was not applicable.

In an opinion by Justice Freeman, the Supreme Court affirmed the Appellate Court.  The Court noted that res judicata had three elements under Illinois law: (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) an identity of cause of action; and (3) an identity of parties or their privies.  Although the parties agreed that the second and third elements were satisfied, the Court held that the first was not.  An order dismissing with leave to amend is not final because it doesn’t terminate the litigation between the parties.

The defendant argued that the dismissal was transformed into one on the merits for purposes of res judicata when the Court’s deadline for filing an amended complaint passed without any action by the plaintiff.  Indeed, the defendant argued that there was no procedural vehicle available to it to finalize the litigation once the deadline to amend had passed. The problem with that argument, the Court found, was that past case law made it clear that courts retain the discretion to allow parties to amend their complaints even after the deadlines had passed.  Therefore, the action remained in non-final state unless and until the defendant filed a motion seeking final dismissal.  The defendant relied on Smith v. Central Illinois Regional Airport, arguing that Smith had held that a dismissal becomes final automatically once the Court’s deadline passed, but the Court found that defendant was relying upon a single line of out-of-context dicta which contradicted a good many previous holdings to the contrary.

The defendant argued that unless the dismissal was accorded res judicata effect, the plaintiffs faced no consequences for ignoring the trial court’s deadline to amend.  But, the Court noted, the circuit court was free to impose whatever consequences it saw fit once the deadline had passed upon a proper motion by the defendant.  Since no follow-up motion had been filed, the initial dismissal was never final.

The Court concluded by briefly rejecting the defendant’s two subsidiary arguments.  The defendant argued that the plaintiffs’ refiling violated the rule against claim splitting, but the Court found that this was merely a variation on the res judicata argument, and no claim splitting problem arose.  The defendant argued that the refiled action was barred by the statute of limitations, but the Court held that the action was saved by the limitations saving clause of the voluntary dismissal statute, 735 ILCS 5/13-217.

Image courtesy of Flickr by Marielle den Hoedt (no changes).